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How to be entrepreneurial

George Bush junior is famously quoted (or misquoted) as having said that the French don’t even have a word for entrepreneur. In these days of financial crisis, uncertainty and turmoil we are extolled to become entrepreneurs. I want to share the results of conversations with Max Boisot (IFF member) about his paper “Crossing epistemological boundaries: Managerial and entrepreneurial approaches to knowledge management” which he co-authored with Ian MacMillan, and appeared in LRP Long Range Planning in 2004.

The conversation was about the mindset of the entrepreneur, how it contrasts with the managerial mindset and the fact that most language supports the managerial mindset. This helped me understand some of what I was seeing going on in a successful growing company in a traditional industry coming up against opposition to its approach. I share my thoughts and interpretations here to shed some light on what it may take to be an entrepreneur.

Managerial vs Entrepreneurial Mindsets

Entrepreneurial and managerial mindsets are quite different; those uniquely at one end of the spectrum have trouble understanding those at the other end. Neither mindset alone is likely to be sufficient for overall success.

In the film Apollo 13 there are two scenes that depict these mindsets. During the countdown and launch scene everyone knows their place, the countdown proceeds, the risks are understood and the plan addresses them, a managerial triumph. Later when they have to build a re-breathing system the engineer in charge throws all the components the astronauts have available onto a table and says ‘we have to use this to make one of these’. Everyone piles in and they are successful. Both mindsets have their place.

We can discuss the mindsets using the diagram below. The diagram represents Possible, Plausible, Probable and Actual worlds. These can be thought of as knowledge worlds.

The entrepreneurial mindset seeks value from uncertainty; creates options to remain effective; and uses an understanding of context to create alternatives.
The managerial mindset seeks to reduce uncertainty and hence risk; seeks to understand the whole plan and then execute it.

That may make sense but it does not explain the tension between the mindsets. The following table may help:

Managerial	Entrepreneurial
Uses justification derived from probability distributions and estimates to get into action	Uses belief, intuition and hunch to get into action
Relies on analysis to identify the solution and then executes	Gets into action to create the solution
Makes risk adjusted investments creating the potential for normal profits	Makes speculative investments creating the potential to capture abnormal profits from idiosyncratic insights
Uses historic data and precedent for analysis. The numbers must add up	Uses experience to judge if something makes sense
Needs to understand all the steps to get there	In an uncertain world each step reveals the next

Mindsets

The problem is not an easy one to fix. The right mindset to bring to bear depends on the task and the nature of the knowledge available. If the knowledge is precise, justified, certain and strongly held then the tools of the managerial mindset are appropriate. If the knowledge is vague, without justification, uncertain and weakly held then we need the tools of the entrepreneur. Broadly we can expect that a business will shift from entrepreneurial to managerial during its life. Making acquisitions and creating options for development are likely to relate to entrepreneurial approaches initially; projects and operations are likely to migrate towards managerial tasks. That is an over-simplification. There will be space for innovation in projects and operations where the accepted route is challenged and, without track record, a new solution invented.

Many of us learned from the big companies. We learned that there are right and wrong answers and that clever analysis will reveal the right answers. Analysis can be performed through the application of process, if the process is right then the analysis will be right and, at scale, it’s easier to share process than judgement.

If we are engaged in something entrepreneurial then we need judgement, feel and experience; these are not well transferred by process.

The world is also skewed to managerial thinking. It is convenient to think we can reduce uncertainty through analysis, to require justification before action. To achieve innovation, big companies protect R&D from the investment criteria of the organisation. In the dotcom bubble lots of people looked at lots of analysis, perhaps not realising that they were looking at vague, unjustified beliefs and significant risk. It is important to know what kind of belief or knowledge we are looking at and to use appropriate tools. Taking an option on a dotcom company might have been wiser than buying one.

Conversations in companies occur to some as a purely managerial process, whereas entrepreneurial elements should be included. Original thinking and disruptive contributions should be welcomed as an integral part of a company’s capacity to innovate. Framed in this way the solution looks more like one of bringing the right thinking to bear at the right time, using the right resources on the right tasks.

A key element of this is to understand which tasks require which type of thinking and also to understand what it takes to be an organisation that thrives on allowing both mindsets to co-exist.

Pat Heneghan 26/03/09

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